CGarcia - Unlike CPQ bulls I predict the price of CPQ in Jan. 2000 will be less than its price today.
I base this on the survivorship principle. In a competitive industry firms that experience higher costs than their rivals are not in the long run apt to survive. CPQ's problem is that it, along with IBM and HWP, is a high cost manufacturer of commercial PCs. I am aware of no evidence to suggest this is about to change. In fact the situation may become worse, depending upon how much difficulty CPQ encounters in absorbing DEC. But even if that high-risk acquisition goes smoothly, CPQ is likely to continue to face a severe cost disadvantage vis a vis Dell.
The daunting problem CPQ faces with Dell can only get worse. The problem is Dell's continuing, rapacious growth, and further downward pressure on PC prices. What is to prevent Dell from continuing to grow at 50% per year? Dell has become a big enough player that now when it grows at 50%, its rivals will experience pain like never before. The global pc market is growing at only about 15% percent per year. Dell can grow at 50% because new business gravitates to the low cost producer. Simple mathematics suggests a shrinking market for everyone else including CPQ.
Commercial PC manufacturers (excluding Dell) have long faced what Business Week called "profitless prosperity." Given that CPQ, HP and IBM figure to continue losing market share, and are already losing money on PCs, why shouldn't we expect their profitless prosperity to continue?
Regards,
Geoff |
